The-Accountant-Mar-Apr-2018

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INFORMATION TECHNOLOGY By Victor S. Mutindah ARTIFICIAL INTELLIGENCE Preamble To most people Artificial Intelligence (AI) is still an alien and remote concept only available in sci-fi movies. Unknown to most of us, AI is already upon us and in practice in most areas of our lives. Use of AI by businesses and governments has been documented in the recent past. AI has been deployed in a number of areas including finance – like to analyze borrower behavior and predict probability of credit default, security (image recognition) to fight crime and identify counterfeit products or solve crimes, agriculture, marketing, transport and logistics (think selfdriving cars), among other areas. Among some of the benefits, AI has helped in fraud investigations and managing fraud risk, reduce errors through automating routine practices and even lead to better customer experience. Evidently, the benefits of deploying AI can be enormous and far reaching. The terms Artificial intelligence, machine learning, and deep learning have often been used interchangeably, although clear differences exist between them. Rob Shaddock, Chief Technology Officer for TE Connectivity describes AI thus: “It’s about having a machine that can reach conclusions in a similar way to a human. That is, it can take examples and learn from them to improve the accuracy of its future conclusions. A good example of that is learning what a dog looks like from photographs of Labradors, poodles, and pit bulls and then later, when shown a picture of a Chihuahua, being able to identify that as being another breed of dog. The machine can reach a new, accurate, conclusion based on what it has learned in the past.”(www.fi.edu/ Nancy Gupton) What is in it for internal auditors? Respondents to the World Economic Forum’s (WEF’s) 2017 Global Risks Perception Survey rated AI highest in potential negative consequences among 12 emerging technologies. Specifically, AI ranked highest among technologies in economic, geopolitical, and technological risk, and ranked third in societal risk, according to the WEF’s Global Risks Report 2017 (Tim McCollum, 2017). WEF also listed cyberattacks and data fraud or theft among top five global risks 2018 in terms of likelihood. Needless to say, anything that touches on control, risk and governance should naturally attract interest of internal audit. Potential negative consequences exist with AI and internal auditors, being well versed with risk identification and risk mitigation, are well placed to help organizations identify and deal with these risks. Common risks associated with new technologies will undoubtedly also be associated with AI. Internal auditors will therefore need to step up and help their organizations identify and manage these risks. Some of the specific risks attributable to AI include: a) Machines could become too intelligent/ 36 MARCH - APRIL 2018
INFORMATION TECHNOLOGY smart such as to get out of control. b) Privacy risks: armed with personal data, machines will now be able to understand many things about people and there is no telling what they can do with that information. c) Risk of cyber-attacks d) Risks related to unreliable machine outputs: for all their “intelligence”, algorithms lack common sense and can misinterpret outputs and it is upon the internal auditors to ensure that these risks have been well mitigated. e) There is also the knowledge gap between developers of the applications and the users. f ) Governance and regulation of AI is also a concern: AI machines can take on a life of their own and because they are not natural persons, it will be difficult to hold them to account. Auditors should help their organizations assess controls around AI algorithms to make sure that intelligent machines are operating as expected. Internal audit can provide value to organizations by applying its skills toward understanding the organization’s objectives with AI and ensuring that risks are being addressed. According to Jim Pelletier (2017), the following are the seven critical areas that internal audit needs to prepare for in readiness for AI: AI governance — Establish accountability and oversight. What policies and procedures need to be established to ensure appropriate governance? Do existing governance frameworks work? Who is accountable and do they have the necessary skills and expertise to effectively monitor AI? How do organizations make sure their values and ethics are reflected? Data quality — it is rare for an organization to have a well-defined, coherent structure to their data. More often, it rests in systems that don’t communicate with each other. How this data is brought together is critical. Auditors need to consider completeness, accuracy, and reliability. Human factor — AI relies on complex algorithms produced by humans. How do natural human biases factor into AI design? How can AI effectively be tested to ensure the results reflect the original objective? How are privacy and security ensured? Is adequate transparency possible given the complexity? Measuring performance — AI is developed to achieve certain objectives. Given the potential complexity, how does an organization know the objectives are being achieved in the best way possible? How are performance metrics established and how does one effectively compare results to alternatives? Re-emphasize cyber-security — imagine a situation where your AI has been hacked and is now doing the bidding of some outside malevolent force. Consider the four R’s of cyber resilience: resist, react, recover, re-evaluate. Filling the understanding gap — the potential impact associated with AI-related risks will be huge and on the top of the list for boards to consider. How can internal audit help to make sure boards and audit committees are prepared to discuss these risks and make good decisions based on the right information? On top of that, how do you begin to improve your audit function’s skills, recognizing that new skills may be required? Ethical issues with AI — most importantly, AI causes us to refocus on ethics. With data privacy and the ethical use of personal data already a big concern, AI will only complicate things further. Benefit of AI to the audit profession: As the world adopts AI to simplify business processes, internal audit should not be left behind. AI can help improve the quality of audit work and decision making by making data extraction more targeted – hence faster and with fewer mistakes. This will then improve decision making and eventually improve the value add by internal audit to the business. Using data mining, AI can understand and extrapolate data and information and can help reduce the chances of fraud, improve audit reactions to potential business changes, and ensure that risks are managed in a more timely and proactive fashion. Auditors can also use AI for scenario analysis to model “what-if ” situations and demonstrate effects to management. Data mining can be used by one part of the organization to influence business direction for profit. Similarly, internal auditors can use the same tools and techniques to reduce risks and increase audit benefits. References: 1. McCollum, Tim (2017). Audit in an Age of Intelligent Machines. The internal auditor magazine 2017 2. Silltow, John (2006). Data Mining 101: Tools and Techniques. The internal auditor magazine 3. Pelletier, Jim (2017). 7 Factors for Internal Audit’s Role in Artificial Intelligence. The internal auditor magazine 4. World Economic Forum Global Risks Report. 5. https://www.fi.edu vinivini48@yahoo.com MARCH - APRIL 2018 37
Page 1 and 2: LEARN • EXPLORE • SHARE MARCH -
Page 3 and 4: TABLE OF CONTENTS 18 COVER STORY Ca
Page 5 and 6: EDITORIAL Dear Reader, Our cover st
Page 7 and 8: Financial Reporting and Assurance t
Page 9 and 10: Financial Reporting and Assurance t
Page 11 and 12: ECONOMY profits to low or no-tax lo
Page 13 and 14: MANAGEMENT The fraud risk managemen
Page 15 and 16: MAKE 2018 THE YEAR OF ACADEMIC EXCE
Page 17 and 18: COVER STORY resources since June 20
Page 19 and 20: Go places. Become an ICAEW Chartere
Page 21 and 22: COVER STORY Moody’s Investors Ser
Page 23 and 24: Public policy national elections tr
Page 25 and 26: FINANCE AND INVESTMENT (a) Obligati
Page 27 and 28: Available to let CPA CENTRE 50% Let
Page 29 and 30: Finance and investment Notwithstand
Page 31 and 32: THE CPA CENTRE HOTEL Set in a seren
Page 33 and 34: WORK PLACE By Zipporah Nyachwaya DI
Page 35 and 36: WORK PLACE • Ensure that all comp
Page 37: WORK PLACE What is Blue Ocean Strat
Page 41 and 42: OPINION numerous challenges. It is
Page 43 and 44: Society marked containers so that i
Page 45 and 46: Society prime minister said one tim
Page 47 and 48: INSPIRATION How Steve Jobs made the
Page 49 and 50: HEALTH The barber shop revival has
Page 51 and 52: ENVIRONMENT the grass clippings mix
Page 53 and 54: HEALTH According to UNICEF, Pneumon
Page 55 and 56: HEALTH Community-acquired pneumonia
Page 57 and 58: TID BITS Former Vodacom Executive N
Page 59 and 60: MEMORABLE QUOTES “When we write t
Page 61 and 62: INSTITUTE NEWS PICTORIAL New KCA Bo
Page 63 and 64: claims, preparing the working file
Page 65 and 66: TRAVEL to swim in. Its altitude off
Page 67 and 68: TRAVEL itself, there are boats and
Page 69 and 70: PEN OFF I was speaking to an accoun
Page 71 and 72: THE 2 ND EAST AFRICAN CONGRESS OF A

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